England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEENS BENCH DIVISION
COMMERCIAL COURT
(Mr Justice Thomas)

		Royal Courts of Justice Strand London WC2A 2LL Wednesday, 24th April 2002

Wednesday, 24th April 2002

1. LORD JUSTICE PILL: Clarke LJ will give the first judgment.
2. LORD JUSTICE CLARKE: In this action the respondent claimant ("Sabah"), which is incorporated in Pakistan but, as I understand it, controlled by Malaysian interests, seeks judgment under a guarantee dated 5th May 1996 in which the appellant, the Islamic Republic of Pakistan ("the ROP"), is "the Guarantor" and Sabah is "the Company".
3. For present purposes it is not necessary to set out the terms of the guarantee in any detail. However, the recitals to the guarantee show that the guarantee formed part of a series of inter-related agreements. Thus, the recitals are in these terms:

"(A)The Guarantor and the Company have entered into an Implementation Agreement (`the Implementation Agreement') dated March 06, 1969.

(B)The Karachi Electric Supply Corporation (`KESC') has entered into a Power Purchase Agreement with the Company (`the Power Purchase Agreement') dated March 07, 1996.

(C)Pakistan State Oil Company Limited (`the Fuel Supplier') has entered into a Fuel Supply Agreement with the Company (`the Fuel Supply Agreement') dated March 25, 1996.

(D)In accordance with Article XXII of the Implementation Agreement, the Guarantor has agreed to enter into this Guarantee of the payment obligations of KESC under the Power Purchase Agreement and the payment obligations of the Fuel Supplier under the Fuel Supply Agreement."

4. Clause 1.1 contains the essence of the guarantee and provides:

"1.1 Guarantee

In consideration of the Company having entered into the Power Purchase Agreement with KESC and the Fuel Supply Agreement with the Fuel Supplier, the Guarantor hereby irrevocably and unconditionally guarantees and promises to pay the Company any and every sum of money KESC and the Fuel Supplier are obligated to pay to the Company under or pursuant to the Power Purchase Agreement and the Fuel Supply Agreement that KESC or the Fuel Supplier has failed to pay when due in accordance with the terms of those agreements, which obligation of the GOP shall include monetary damages arising out of any failure by KESC or the Fuel Supplier to perform its obligations under the Power Purchase Agreement or the Fuel Supply Agreement, respectively, to the extent that any failure to perform such obligations gives rise to monetary damages."

5. The guarantee contains a number of clauses which are of potential relevance to the underlying dispute between the parties including clause 1.5, which provides for a demand, and clause 1.6, which provides for certification of the demand.
6. Clause 1.9 provides:

"Submission to Jurisdiction: Service of Process

1.9.1 Submission to Jurisdiction

Each Party hereby consents to the jurisdiction of the Court of England for any action filed by the other Party under this Agreement to resolve any dispute between the Parties and maybe enforced in England except with respect to the Protected Assets, as defined in the Implementation Agreement of the Guarantor.

1.9.2 Appointment of Agent for Service of Process:

With respect to any proceedings referred to in Section 1.9.1;

(a)The Guarantor appoints, the Commercial Officer, or in his absence, another diplomatic agent of its Diplomatic Mission at such Contracting Party, and, in all cases, the Commercial Counsellor of the Islamic Republic of Pakistan in London (or, in his absence, a responsible officer in the High Commission), whose address is presently 35/36 Lowndes Square, London SW1 9JN, England, to receive for and on its behalf service of process in any such proceeding;

(b)The Company appoints Clyde & Co, whose address is presently 21 Eastcheap, London EC3M 1JP, England to receive for and on its behalf service of process in such jurisdiction in any such enforcement proceeding;

(c)Each Party shall maintain in London a duly appointed agent for the receipt of service of process and shall notify the other Party of the name and address of such agent and any change in such agent and/or the address of such agent;

(d)Each Party agrees that the failure by any such agent for the receipt of service of process to give it notice of any process that has been served on such agent shall not impair the validity of such service or of any judgment based thereon.

1.9.3 Waiver of Defence of Inconvenient Forum

Each Party waives any objection that it may now or hereafter have to the venue of any action or proceeding brought as consented to in this Section 1.9, and specifically waives any objection that any such action or proceeding was brought in any inconvenient forum and agrees not to plead or claim the same. Each Party agrees that service of process in any such action or proceeding may be effected in the manner set forth in this Section 1.9 or in any other manner permitted by applicable law."

7. Clause 2.6 makes detailed provisions relating to the waiver of sovereign immunity, and clause 7 provides that the guarantee is to be governed by and construed in accordance with English law.
8. A dispute arose between Sabah and KESC under the Power Purchase Agreement, which was submitted to arbitration in Singapore in accordance with clause 5.3 of that agreement. The arbitrator was the Honourable Sir David Tompkins QC, who made an interim award dated 8th December 2000 in which he declared that KESC was liable to pay Sabah the sum of US$6.84 million, plus interest, under clause 9.4(f)(iii) of the agreement. By final award dated 4th June 2001, the arbitrator made an order for principal interest and costs. KESC did not pay the amounts due under the awards. On 3rd September 2001 Sabah demanded a total of US$8,956,573.25 from the ROP under the guarantee, made up of the principal sum of US$6.84 million plus interest and costs. It also issued a certificate under the guarantee to like effect.
9. In this action Sabah seeks judgment in that total amount against the ROP under the guarantee. It has issued an application for summary judgment under CPR Part 24, which is to be heard on 13th May.
10. The claim form in this action was issued on 12th December 2001. In the meantime on 31st October 2001 the ROP had issued proceedings against Sabah in the court of the Senior Civil Judge in Islamabad, Pakistan seeking declarations that the awards were obtained by Sabah by fraud, that the demand based on an award arising from the arbitration was not binding on the ROP and that the guarantee is invalid due to failure of consideration. The ROP also sought a permanent injunction restraining Sabah from making any demand under the guarantee.
11. I should perhaps note that proceedings had previously been begun by KESC in the Sindh High Court in Karachi (but not in Singapore) seeking to challenge the award. Also, Sabah has commenced arbitration proceedings under the Implementation Agreement against the ROP, claiming the same sums as under this guarantee.
12. On 31st October 2001 the ROP also sought and obtained a temporary injunction against Sabah. The note of the judge's reasons and order states as follows:

"Plaintiff/petitioner has also moved an application for temporary injunction alongwith the suit. Learned counsel for the plaintiff/petitioner has submitted that plaintiff was not made a party by the defendant in its alleged claim against KESC before the arbitrator and the award against KESC was obtained by fraud in order to enforce the contract of guarantee against the government of Pakistan for the payment obligations of KESC under the Power Purchase agreement. It is submitted that now the defendant is bent upon to recover the amount of guarantee from the plaintiff on the basis of a said disputed award. It has been further submitted that no demand can be made on the basis of arbitration award obtained in the proceedings in which the plaintiff/petitioner was not a party and that the contract of guarantee also does not contain any provision in this regard. Application for temporary injunction is supported by affidavit. Accordingly till the next date of hearing the defendant is hereby restrained to demand/recover any amount from the plaintiff on the basis of guarantee."

13. In the event, the "next date of hearing" was 5th November 2001 when the order was not continued. In short, Sabah's case is that there has been no injunction in effect since 5th November 2001.
14. On 11th December 2001 David Steel J, on an application made by Sabah without notice, granted an injunction in these terms against the ROP:

"The First Defendant [that is the ROP] must not (whether by itself, its servants or agents or otherwise howsoever):

(1)pursue any legal proceedings against the Claimant which relate to or are connected with the Guarantee dated 5th May 1996 (`The Guarantee') given by the First Defendant to the Claimant, otherwise than in the English Courts;

(2)(without prejudice to the generality of the foregoing) pursue the legal proceedings brought by the First Defendant against the Claimant in the Court of the Senior Civil Judge in Islamabad (Pakistan);

(3)commence or pursue in any court (other than the English Courts) any legal proceedings which restrain, stay, suspend or invalidate (a) any demands of the Claimant made or which may hereafter be made under the Guarantee, and/or (b) the Claimant's proceedings herein; or which in either case seek such result or have such effect;

(4)take any other action which would prevent or interfere with the performance by the Second Defendant [KESC] of its obligations under the Power Purchase Agreement dated 7th March 1996."

15. The judge also granted an injunction against KESC, and granted permission to serve claim forms out of the jurisdiction.
16. The ROP subsequently applied, among other things, for an order that the proceedings be set aside for want of jurisdiction or that the proceedings be stayed. Those applications came before David Steel J on 5th/6th February 2002, as did Sabah's application to continue the injunction. The judge continued the injunction and refused the ROP's applications. He granted the ROP permission to appeal on one issue, but otherwise refused permission.
17. The ground upon which he granted permission was what he described as the "state immunity issue", which may be summarised in this way. The ROP submitted that the court had no jurisdiction to grant an injunction against it by reason of section 13(2) of the State Immunity Act 1978. The judge rejected that submission, having regard to section 13(3) of the 1978 Act and to the relevant provisions of the guarantee. We understand that the appeal on that ground has not been fixed. It has a window between a date in June and a date in October but, unless expedited, may not be heard until October. No application was made for a stay at that time pending the appeal, no doubt because the appeal related only to the injunction.
18. The ROP subsequently sought permission to appeal on the issues upon which it failed and also a stay of the action pending the hearing of the appeal. In my capacity as supervising lord justice in commercial appeals, I directed that, if possible, the hearing of the applications and of the appeal should be heard at the same time but that, in any event, the applications should be heard before the date fixed for the Part 24 application, which is 13th May. Unfortunately, it has not proved possible for the appeal to be heard before 13th May. I also directed that the applications be heard orally on notice to Sabah, partly because of the general nature of the case and partly because the ROP seeks to rely on further evidence which has come into existence since the order of the judge. We are therefore now considering whether permission to appeal should be granted and, if so, whether we should order a stay of the action pending the hearing of the appeal.
19. The judge granted the injunction on the basis that the proceedings in Pakistan brought by the ROP against Sabah are vexatious and oppressive. The ROP wishes to challenge that conclusion on appeal. In addition, there was an issue before the judge as to whether the injunction originally granted in Pakistan remained in effect when he granted the application on 11th December 2001. The judge declined to determine that question. In this regard he said this:

"I am not persuaded that it is necessary, or indeed appropriate, for me to decide this interesting issue of Pakistani law. It seems to me that the arguments are nicely balanced. The issue I have to decide is whether there has been any non-disclosure of the contrary argument to that advanced by the claimants and, if so, its significance."

20. The judge then considered whether there had been relevant non-disclosure before him and held, after hearing the evidence of Pakistani lawyers on both sides, that there had not because he accepted the evidence of Sabah's lawyer, Mr Talibuddin, that he was of the view that the order required renewal on 5th November and that it had not been renewed on that date. Mr Young submits that the order remained in existence and that the judge should have decided whether it did or not, a point which the judge described as "nicely balanced".
21. Mr Young further refers to events since the decision of the judge. The matter came back before the judge in Islamabad on 7th, 12th and 14th February. On 7th February the judge was informed of the order of David Steel J which had been made on 6th February, the day before. He was thus informed of the injunction granted by the English court. The court adjourned the matter to 12th February. However, the note of what the judge said on that day includes the following:

"As the defendant [i.e. Sabah] has not yet filed the written statement and written reply to the application for temporary injunction, therefore, till the next date of hearing the stay already granted by this court on 31.10.2001 is hereby extended. Come up for filing of the written reply on 12.2.2002."

22. It thus appears that on the face of that order, whatever the position had been up to then, the injunction was renewed on that date. However, it is not clear to me to what extent, if at all, the ROP relies upon that order, because I think it is recognised that it is unlikely that the judge intended to impose a fresh injunction having just been told of the English court's order of the day before. It is perhaps more likely that he simply intended to maintain whatever the status quo was.
23. However that may be, the matter came back before the judge on 12th February, when it was adjourned again until 14th February. On that day both parties were represented, with Mr Akhtar representing the ROP. The evidence sought to be relied upon by the ROP is contained in the third statement of Mr Morris, where he said this:

"On 14 February 2002 Mr Akhtar attended before the Islamabad Judge to explain the position. The Claimant was also represented at the hearing. Mr Akhtar explained to the Islamabad Judge that as a result of the injunction granted by the Honourable Mr Justice David Steel, IRP was unable to take any steps in its suit before the Islamabad Court including making a reply to the Claimant's application for a stay of the proceedings. The Islamabad Judge ordered that the proceedings in the Islamabad Court be adjourned sine die. The Islamabad Judge read a copy of the Affidavit of Mr Shelford filed on behalf of the Claimant in support of its without notice application for anti suit injunctive relief before the Honourable Mr Justice David Steel on 11 December 2001 and noted that it gave the impression that the Islamabad Injunction had ceased to exist. The Islamabad Judge found that this prima facie was a mis-statement and that the Islamabad Injunction did not cease to exist as it was not vacated by the Islamabad Court. The Islamabad Judge also found as follows:

`[the Claimant] appears to have violated the [Islamabad Injunction] by initiating proceedings in the English Court. It is settled law that the court can itself take action against such violation notwithstanding the fact that [IRP] had fallen into a legal disability to participate in the proceedings of this suit. It would, however, be appropriate to see the nature of the representation made on behalf of the [Claimant] in respect of the injunction in the Honourable English High Court before proceedings [sic] further. The [Claimant] is directed to produce copies of the said record on 6.4.2002.'"

24. In response to that evidence Sabah have put in the third statement of Mr Talibuddin in which he challenges the suggestion that the judge "found .... that the Islamabad injunction did not cease to exist as it was not vacated by the Islamabad Court", as suggested in paragraph 6 of Mr Morris's statement. Mr Talibuddin gives a detailed account of the events of 14th February. However that may be, on 6th April, when representatives of Sabah attended, the judge was on holiday and the matter has, it appears, been adjourned to 11th May. It may be that the position in Pakistan will be clarified on that day.
25. Mr Saloman submits that the views of the judge in Islamabad are irrelevant, for the reasons given by Thomas J on 25th January 2002 when he refused an application by the ROP that the ROP be permitted to apply to the judge in Islamabad for clarification of the earlier order. Mr Young submits that, if only on the grounds of comity, the court should have regard to any views expressed by the judge in Islamabad.
26. I have reached the conclusion that the ROP has a real prospect of persuading the Court of Appeal that on the inter partes hearing the judge should have decided whether or not the order of 31st October in Pakistan was in existence at the time he made the order of 11th December. As at present advised, it seems to me to be potentially relevant whether or not an application for an injunction is made in breach of an order of a foreign court, even if the applicant is unaware of it. Further, it seems to me that the Court of Appeal may wish to have regard to any views expressed by the court in Pakistan. There are many cases which have stressed the importance of comity in cases of this kind. These are, I think, matters which are fit for consideration and review by this court.
27. Mr Saloman has drawn our attention to the fact that the judge considered the position on the assumption that the injunction granted in Pakistan was still in force, not only on 11th December, but also on 5th and 6th February when the judge was considering the matter. He relies on the following passage in the judgment:

"I should add this: that even if Mr Talibuddin should have appreciated it was arguable the injunction remained in force, it would have been of limited significance to the application to this Court. First, because the need to go ex parte would have been fully justified given the argument that no injunction was in force but that it could be readily reinstated. Secondly, the whole thrust of the application was that the invocation of Pakistan jurisdiction to obtain an injunction was vexatious and oppressive, and thus the arguable existence of the outcome of such an oppressive and vexatious proceedings would have been of limited materiality to the exercise of discretion. In any event, even if I had concluded there had been a material nondisclosure, I would not have been minded to discharge the ex parte injunction, nor, in the light of the additional material now available to which, in part, reference has been made, refuse to grant an injunction now."

28. It appears to me that in that passage the judge was considering the alternative simply on the basis that it was arguable that the injunction remained in force. He nowhere considers the position on the assumption that the injunction in fact remained in force. To my mind it is at least arguable that, where it is said that a claimant seeking an anti suit injunction in an English court is doing so in breach of an injunction granted by a foreign court, the English court should, other things being equal, determine whether or not there was such an order in force and then take that fact into account in deciding how the court should exercise its discretion. Only in such a way can the important principles of comity be given their due weight. It appears to me that it is at least arguable that the judge did not do that on this occasion. It follows, in my judgment, that the ROP should be permitted to put its case in this regard before the Court of Appeal so that the court can decide whether the injunction was properly continued or not.
29. Further, I am persuaded that the ROP has a real prospect of showing that the judge was wrong to hold that the proceedings in Pakistan are oppressive and vexatious. There are comparatively few cases in which the court has considered the position of two or more sets proceedings in the context of non-exclusive jurisdiction clauses. Here the position is complicated by the terms of clause 1.9.3 of the guarantee, which I quoted earlier. It appears to me that one possible view is that the contract contemplates proceedings in more than one jurisdiction and that, in those circumstances, it cannot properly be said that the proceedings in Pakistan are vexatious and oppressive or, as it is sometimes put, unconscionable or wrongful: see e.g. Turner v Grovit [2002] 1 WLR 107, per Lord Hobhouse, at paragraph 24.
30. On the other hand, Mr Saloman relies upon a number of features of the case which the judge held to exist which, he submits, plainly lead to the conclusion that the proceedings were indeed wrongful in the sense used by Lord Hobhouse. He submits that the whole purpose of the Pakistani proceedings was a device to avoid a judgment in an agreed jurisdiction. He draws our attention to the fact that the judge held that there is no possibility of a stay being granted in Pakistan, because it appears that there is no power to grant a stay on the ground of forum non conveniens. He submits that this dispute has nothing to do with Pakistan. The dispute under the guarantee arises out of a contract governed by English law which contains specific provisions which provide that England is at least a forum conveniens, if not the forum conveniens. He further points to the fact that the arbitration agreement (indeed the arbitration agreements) are governed by English law, provide for arbitration in Singapore and are subject to the Model Law as enacted in Singapore. Mr Saloman thus submits that any attempt to challenge the validity of the awards should have been made in the relevant jurisdiction, namely Singapore. He submits, in short, that the proceedings in Pakistan, both by KESC and by the ROP, are simple devices. I see the force of those submissions. However, it appears to me that these are all matters which, in the context of the case as a whole, should properly be considered by the full court on the appeal.
31. I should perhaps add that, if it were held that the proceedings in Pakistan are not oppressive, vexatious, unconscionable or wrongful and that the injunction should be discharged, it by no means follows that the action should be stayed. Indeed Mr Saloman submits that the ROP should not be permitted to argue that it should be stayed on an appeal.
32. I initially thought that, while the ROP should be permitted to argue that the injunction should be discharged, there is no basis for saying that the action should not be permitted to proceed, rather as occurred in National Westminster Bank v Utrecht America Finance Company [2001] 3 All ER 733. Indeed, in the light of the express provisions of clause 1.9 of the guarantee under which each party consented to the jurisdiction of the English court and waived any objection on the grounds of inconvenient forum, it is difficult to see how Sabah can properly be prevented from proceeding in England. However, Mr Young submits that the application for an injunction in England at a time when, on the ROP's case, there was an injunction granted by the courts of Pakistan restraining such proceedings, amounts to an abuse of process of the court. He submits that he should be permitted to argue before the full court that the action should have been stayed on that ground.
33. This is a complex matter, and the appeal will involve a detailed review of the whole position. As I have already indicated, one of the questions which the court will no doubt wish to consider is both the existence or otherwise of an injunction in Pakistan and the grounds of that injunction. Although I am bound to say that as at present advised I find it difficult to see how such an injunction is justified, having regard to the express terms of clause 1.9 of the Act, I have reached the conclusion that the whole matter should be resolved at the hearing of the appeal and that a stay of the action should be granted in the meantime. I can see no prejudice to Sabah in such a solution. On the one hand the action is stayed, but on the other hand the injunction by David Steel J remains in force pending the appeal.
34. For these reasons, I would grant the application for permission to appeal and I would grant a stay of the action in the meantime, which will inevitably involve vacating the date on 13th May at present fixed for the hearing of the Part 24 application.
35. LORD JUSTICE CHADWICK: I agree that the points which Clarke LJ has identified need to be resolved at the hearing of an appeal; and that, accordingly, permission to appeal in the terms sought should be granted. I agree also that there should be a stay of the proceedings in the meantime.
36. LORD JUSTICE PILL: I also agree.
Order: Appeal granted. Costs reserved to the full court with a 2-day time estimate.